States that have no income tax include Florida, Nevada, South Dakota, Texas and Washington, reports USA Today. Alaska and Wyoming also have no income tax and receive state funding mainly through natural resource taxes. Additionally, Tennessee and New Hampshire have no tax on earned income but tax only dividends and interest.
Alaska is one of the most tax-friendly states, explains USA Today. It not only has no income or sales taxes, but also has low property taxes. Additionally, it pays residents annual royalties for its gas and oil production through the Alaska Permanent Fund. Its main financial drawback is the high cost of living due to its isolated location. Wyoming has a low sales tax but a relatively high property tax.
Proponents of eliminating state income taxes claim that states with no income tax tend to encourage job growth and retain workers, according to Bankrate. However, these states make up for the lack of income tax revenue with other taxes. For instance, Tennessee has the highest sales tax rate in the nation as of 2015, and Texas, Florida and Nevada also have high sales taxes. The state of Washington has an extremely high gasoline tax rate. Property taxes are well above the national average in New Hampshire, Texas and Florida.